QuickBooks Online Instructions

We receive frequent questions about how to record invoice factoring transactions in QuickBooks, so we put together this step-by-step guide.
 

One-time preparation

 

Before jumping into how to record transactions, take a minute to do this set-up. You will only need to do this once.
 

Check your accounting type
 

This guide assumes you are using "accrual accounting." Not sure what accounting method you are using? From the home screen, click the gear in the top right, next to your company name. Select Company Settings. On this screen you will see Accounting Method, which will either say Cash or Accrual.
 

Set up factoring accounts

 

We will create two accounts that we will use during transactions.
 

Create your "factoring advances" account

 

This account will record the invoice advances you have received. Go to Transactions>Chart of Accounts and hit “New” in the top right corner. Set the details to match the following:

  • Category type: Other Current Liabilities
  • Detail Type: Line of Credit
  • Name: “Factoring advances” or a similar name
  • Starting balance: $0

Check that your account screen looks like the following, then click the blue "Save and close."

 

Create your "factoring fees" account

 

This account will record the invoice factoring fees you have received. Go to Transactions>Chart of Accounts and hit “New” in the top right corner. Set the details to match the following:

  • Category type: Expenses
  • Detail type: Finance Costs
  • Name: “Factoring Fees” or similar

Check that your account screen looks like the following, then click the blue "Save and close."

Now that your QuickBooks accounts are set up, we’ll walk through the four QuickBook steps to account for factoring.


Step 1: Create an invoice


When you do work, create and send an invoice to your clients just like normal. For our example, we will use an invoice (#1041) sent to Cool Cars for $10,000. We will factor this invoice for 3 weeks at an 85% advance rate and 1%/week fee.


Step 2: Record the advance


Create a new bank deposit by clicking the "+" at the top of the screen as shown below.


Fill out the deposit form using the following details:
  • In the top left, select the bank account the advance is going to (we will use Checking for this example)
  • In Add New Deposits, fill out a line with the following information:
    • Account: Factoring Advances
    • Description: this is not required, but typing the customer invoice # here will help you keep track of the transactions
    • Reference Number: not required, but recommended you enter the invoice #
    • Amount: the amount of your advance (in our case, $8,500)
  • Click “save and close” in the bottom right to record the transaction

Below is our example deposit form all filled in with our Cool Cars advance. (Note that we did not check any boxes under Select Existing Payments.)


When the customer pays, we close out the transaction by doing the third and fourth actions: we Receive Payment from the customer, then we do a bank deposit that accounts for the fees.


Step 3:  Receiving a payment


Go to "Receive Payment" by clicking the "+" at the top of the screen as shown below.
Creating a Receive Payment

Fill out the Receive Payment form with the following details:
  • Choose the correct customer in the top left (in our example, Cool Cars)
  • Reference number: it will help to enter the invoice number (#1041 in our example)
  • Deposit to: select “Undeposited Funds”
  • Check the box next to the invoice you factored
  • Click the blue “Save and new” (or “Save and close”) button in the bottom right to record the transaction.

Below is our example form:


Step 4: Balance accounts


Create a new bank deposit. Fill out the deposit form with the following details:
  • In the top left, select the bank account that you want the rest of the funds to go to (in our example, Checking)
  • In the Select Existing Payments section, check the box next to the payment that you just recorded in the previous step. (This is where the Reference Number comes in handy: in this example, we have multiple payments from Cool Cars, so seeing an existing payment with #1041 helps us pick the correct payment.)
  • Fill out a line in the Add New Deposits section:
    • Account: Factoring Advances (or your name for this Current Liabilities account)
    • Ref No.: fill out the invoice number if you wish
    • Amount: enter the value of the advance as a NEGATIVE number. (In our example, we received an $8,500 advance, so we enter “-8,500”)
  • Fill out a second line in Add New Deposits:
    • Account: Factoring Fees (or your name for this Expense account)
    • Ref No.: fill out the invoice number if you wish
    • Amount: enter the total accrued fees as a NEGATIVE number. (In our example, our cost is 3 weeks * 1%/week * $10,000 = $300, so we enter “-300”. Hint: You can always find these numbers in the Reports tab of your BlueVine dashboard)
  • Note that our deposit form shows that $1,200 will be deposited to our bank account. That’s because 15% (or $1,500) was held back from our original invoice until the customer paid. Now that it is paid, BlueVine is passing along this amount minus fees: $1,500 - $300 = $1,200.
  • Click the “Save and close” button in the bottom right

Below is our example bank deposit form:
Bank deposit Closeout

Done!


That’s all you need. But if you’re interested in digging into the details of how your accounts changed at each step, here you go. These use the numbers from our example invoice. ($10,000, 85% advance, 3 weeks, 1% fee/week.)

After Step 1 (invoicing):
  • Accounts Receivable (current asset): $10,000

After Step 2 (recording the BlueVine advance of $8,500):
  • Cash (asset): $8,500
  • Accounts Receivable (current asset): $10,000
  • Factoring Advances (current liability): $8,500

After Step 3 (recorded customer payment):
  • Cash (asset): $8,500
  • Undeposited Funds (current asset): $10,000
  • Accounts Receivable (current asset): $0
  • Factoring Advances (current liability): $8,500

After Step 4 (our ending bank deposit):
  • Cash (asset): $9,700
  • Factoring Fees (expense): $300
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